Below you will find a detailed guide outlining each of the steps involved in purchasing a property in Colombia. Some of the steps contain links with additional information on the subject. If you have any further questions or concerns regarding your real estate purchasing process, do not hesitate to contact us at Restrepo Legal.

Step 1 - Title Search

After locating a Colombian property you are interested in purchasing, it is important to run a thorough Title Search on the property before signing any purchase agreement with the seller. A properly-conducted Title Search, called an Estudio de Títulos, will not only investigate the history of ownership and liens on the property, but will also search for any previous illegal activity connected with the property due to Colombia’s stringent criminal forfeiture laws. Title Searches in Colombia are generally conducted by lawyers as Title Search companies do not exist in the country.

The main goals of the Title Search are:

• Make sure that the seller fully owns the Property

A Title Search revises the history of ownership (chain of title) to make sure that the property was properly transferred from owner to owner up to the current seller. This assures the buyer that the seller has the legal right to sell the property they are offering and that the buyer’s ownership of the property will not be challenged in the future.

A revision of the chain of title will also determine if the seller owns the property outright and does not only own a portion of it, i.e. if he inherited it along with his brother so only owns half the property, or if he bought it with his wife with community funds so it is community property held by both him and his wife.

• Check for encumbrances on the Property

A proper Title Search will also show any encumbrances against the property. This could be bank liens for mortgages, judicial liens placed in lawsuits against the seller, or liens placed by the government or public utility. All of these liens must be cleared before the property can be transferred. Other encumbrances that may come up are easements (which give permission for another entity to use, but not own, the land), and Reglamentos de Propiedad Horizontal, binding the property to Colombian Home Owner’s Association.

• Check for any previous Illegal Activity connected to the Property

Due to its history of violent conflict, Colombia has enacted some of the strictest criminal asset forfeiture laws in the world. These laws, Ley 1708 de 2014, Libro II, empower the government to confiscate a property that was even tangentially related to criminal activity anytime in past, including property that was purchased with illegal funds. This confiscation may happen even if the property is currently owned by an unrelated, law-abiding person. In these cases, called extinción de dominio, ignorance is not a defense as each property purchaser is expected to do their due diligence in researching a property’s history before purchase. A proper Title Search will thoroughly research the previous ownership of the property and provide that due diligence.

Step 2 - Real Estate Purchase Agreement

The contract between the buyer and seller regarding the sale of a Colombian property is called a Promesa de compraventa and it will either be drafted by a real estate agent or an attorney. The first proposed draft of the Promesa de compraventa will often be amended, or even replaced completely (in cases where there are two dueling contracts written out by both sides), before both parties are in agreement to the terms of the sale and sign the document.

The Promesa de compraventa should always include:

• Legal identity the property

• Identity of the parties

• Terms of the sale

• A timeline of key events in the transaction

• Penalties for failure to abide by the contract

• The signatures of all parties

Though a Promesa de compraventa functions very much like a Sale and Purchase Agreement in the US, there are several issues that often come up surrounding a Promesa which a foreign buyer should be aware of when entering into any property sale negotiation.

Click here for information on issues to watch out for with the Promesa de compraventa

Step 3 - Bringing Money into Colombia for the Property Purchase

Due to the amount of money being transferred and the need to convert currency, most foreign buyers bring the funds needed to purchase a Colombian property through a Brokerage Firm.

As the name implies, most Brokerage Firms offer a variety of financial services, including buying stocks and other securities, but they can also be used to transfer large amounts of money in and out of the country in a method that is safe, properly recorded, and in compliance with the financial regulations of both countries.

The following is the process of using a Brokerage Firm to bring property purchase funds into Colombia:

• Open an account with a Brokerage Firm in Colombia.

• Transfer money from your bank account in your home country to the Brokerage Firm’s bank account in the US or Europe.

• The Brokerage Firm converts that money into Colombian Pesos at an agreed-upon rate.

• The Brokerage Firm will fund your account in Colombia (in Colombian Pesos).

• You withdraw the funds from your account with the Brokerage Firm in Colombia to pay for the property.

Step 4 - Paying for the Property

Due to the lack of escrow services in Colombia, payments on a property are customarily paid directly to the seller. This, obviously, leaves the home buyer open to many dangers, including non-compliance (the seller takes the money but doesn’t hand over the property) and outright scams (the seller was the not the real owner of the property and just steals the money).

It is this step that most fills foreign buyers with apprehension during the home purchasing process in Colombia and it is up to the attorney representing the buyer to craft both a payment schedule and method of payment into the Promesa de compraventa that protects the buyer as much as possible while still giving assurances to the seller that he will not somehow be shortchanged out of his property.

Step 5 - Transferring Property Ownership

Transferring ownership (title) of a Colombian property during a sales transaction requires the following steps:

• Filling out the deed of transfer, called a escritura publica.

• Authentication of the signature and fingerprints of both the grantor (seller) and grantee (buyer) by an authorized person on the escritura publica. (In Colombia, if the grantee does not sign “accepting” the property transfer, the property transfer cannot proceed).

• Registering (recording) the transfer with the government at the Oficina de Registro de Instumentos Publicos. After it is recorded, the property transfer becomes public and is legally valid.

The good news is that this process has been streamlined in Colombia and almost all the aspects of the title transfer are handled in one location, called a Notaria.

For more information on Notarias and the Notario’s role in a Property Transfer, click here

Step 6 - Payment of additional costs related to a Property Sale in Colombia

Beyond the sale price, there are several additional costs which come with buying a property in Colombia. This additional costs include:

• Various Notaria fees charged for their role in the property transfer

• Various Government Taxes tied to the transfer of title

• Real Estate agent’s commission

These additional costs come due at the closing of the property transfer, generally when the public deed is being signed at the Notaria, and many must be paid in full before the property transfer can be officially registerd. The terms of the Promesa de Compraventa ultimately dictates which party is responsible for which costs (or if it will be split between them), though established local custom generally provides the basis for responsibility for payment.

Click here for a full list, explanation, and breakdown of Closing Costs in Colombia

Step 7 - Registering your Property Purchase as a Foreign Investment

Colombian law requires that all foreign direct investment, including puchases of Colombian real estate, be registered with Colombia’s central bank, the Banco de la Republica. This registration should be completed as soon as possible and failure to do so can result in fines and penalties up to 200% of the value of the investment.

Strangely, due to the convoluted way the laws were written, what exactly qualifies as foreign direct invest does not directly correlate to the property purchaser being a foreigner or using foreign funds to make a purchase, though the majority of the time it does. Under certain situations, a Colombian citizen who lives abroad or foreign citizen who has lived in Colombia may technically lead to an opposite result of what is expected, though these cases are rare.

Regardless, there are benefits to registering your property purchase as a foreign direct investment other than avoiding potential fines.

• Protection of the Investment in the future

The Colombian Constitution specifically protects a foreign investor’s right to withdraw their foreign investment (or its equivalent in cash) from Colombia in the future if it properly registered with the Banco de la Republica. This protection is extremely important because countries in Latin America (Argentina most recently) often enact emergency laws during financial downturns preventing people from withdrawing money from the country (creating a nightmare limbo for foreign investors). Even in this emergency scenario, the Colombian Constitution guarantees that foreign investors could withdraw their properly-registered money from the country, even if Colombians could not.

• Colombian Real Estate Investment Visa

  In order to receive a Colombian Real Estate Investment Visa the buyer must show that the property investment was properly registered with the Colombian central bank. Colombian immigration will not grant a visa without proof of proper registration, even if you can prove that you otherwise own a qualifying investment property.

Additional Related Articles:

• How to search for a Property to Purchase in Colombia

• Airbnb Investment Property Regulations

At Restrepo Legal, we can help you through every step of the property transfer to ensure that none of these issues will become a problem for you. From title searches to the drafting of a promissory note, from financial transfers to the handing over of the keys, we will help you protect your investment and make sure you will be able to enjoy it for years to come. Contact us now if you want peace of mind regarding your real estate transaction in Colombia.